Andy Haldane, the chief economist of the Bank of England, notes that the conventional theory views the economy as a rocking horse that, when perturbed by an outside force, sways for a while before predictably settling back down to a static equilibrium. But, as Haldane has pointed out, what we saw during the crisis was more like a herd of wild horses—something spooks one of them, it kicks another horse, and pretty soon the whole herd is running wildly in a pattern of complex, dynamic behavior.
In the years before the crisis, a new view of economics began to stir. Since the crisis, it has begun to blossom. This view holds that the economy is a constantly evolving, interacting network of highly diverse households, firms, banks, regulators, and other agents, more like Haldane’s wild herd than a rocking horse. The economy—a complex, dynamic, open, and nonlinear system—has more in common with an ecosystem than with the mechanistic systems the neoclassicists modeled their theory on.
Authors: Eric Beinhocker, Nick Hanauer
Source: McKinsey Quarterly
Subject: Economics
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